Skip to main content
Back

Government Purchases and the Multiplier Effect definitions

Control buttons has been changed to "navigation" mode.
1/14
  • Multiplier Effect
    A chain reaction where an initial change in spending leads to amplified shifts in total output and income through repeated rounds of consumption.
  • Fiscal Policy
    Government actions involving changes in spending or taxation aimed at influencing overall economic activity and aggregate demand.
  • Government Spending
    Expenditures by the public sector on goods, services, and projects, directly injecting funds into the economy and affecting GDP.
  • Gross Domestic Product
    The total market value of all final goods and services produced within a country, often measured as C+I+G+NX.
  • Household Income
    Earnings received by individuals or families, which increase when government outlays create jobs or fund projects.
  • Household Consumption
    Spending by individuals or families on goods and services, which rises with increases in disposable income.
  • Marginal Propensity to Consume
    The fraction of additional income that households spend on consumption rather than saving, crucial for determining the multiplier.
  • Aggregate Demand
    The total demand for goods and services in an economy at various price levels, influenced by changes in spending components.
  • Aggregate Demand Curve
    A graphical representation showing the relationship between the price level and the quantity of output demanded.
  • Chain Reaction
    A sequence of events where an initial economic action triggers subsequent rounds of spending and income generation.
  • Multiplier
    A numerical value, calculated as 1/(1-MPC), indicating the total impact on GDP from an initial change in spending.
  • Initial Spending
    The first round of expenditure, often by the government, that sets off further rounds of economic activity.
  • Consumption Function
    A relationship showing how household spending varies with changes in disposable income.
  • Rounds of Spending
    Successive cycles of expenditure and income generation, each smaller than the previous, resulting from the multiplier effect.